As if we didn't already feel this, Redfin says 2023 marked the least affordable year for homebuyers to purchase a home. However, there is optimism on the horizon as 2024 is expected to bring improved housing affordability.
In 2023, someone earning the median U.S. income of $78,642 would have had to allocate 41.4% of their earnings to monthly housing costs if they purchased the median-priced U.S. home, valued at $408,806. This figure represents the highest share on record and is an increase from 38.7% in 2022.
The report, which includes data up to October 2023, highlights that housing affordability has been impacted by a combination of factors, including inflation, rising home prices, increased mortgage rates, and limited housing supply.
"A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” said Redfin Senior Economist Elijah de la Campa. “The good news is that affordability is already improving heading into the new year. Mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024.”
The typical 2023 homebuyer needed an annual income of at least $109,868 to allocate no more than 30% of their earnings to monthly housing payments for a median-priced home. This figure represents a record high, up 8.5% from 2022.
One of the key contributors to reduced affordability has been the rapid increase in monthly housing payments. In 2023, the median monthly housing payment for homebuyers reached a record $2,715, reflecting a 12.6% increase from the previous year. Over the same period, the median household income rose by only 5.2%.
Mortgage rates played a crucial role in driving up housing costs. In October 2023, the average 30-year-fixed mortgage rate reached a 23-year high of 7.79%. Although rates have since fallen to 7.22%, they remain more than double the record low of 2.65% seen during the pandemic.
While elevated mortgage rates have tempered homebuyer demand, housing prices have remained high due to limited inventory. The median home sale price in 2023, at $408,806, set a record as the highest in any year on record. Many homeowners have been reluctant to sell their homes, fearing the loss of their low mortgage rates.
Austin, Texas was the only metropolitan area among the 50 most populous in the U.S. where housing affordability improved in 2023. In contrast, Anaheim, California and Miami, Florida saw the most significant declines in affordability. In Anaheim, someone earning the median income in 2023 would have had to allocate 88.3% of their earnings to monthly housing costs if they purchased a median-priced home, marking the largest jump among the 50 most populous metros.
The report also found that California dominated the list of least affordable metros, with Anaheim, San Francisco, San Jose, Los Angeles, and San Diego topping the rankings. In contrast, Midwest metros, including Detroit, Pittsburgh, Cleveland, Philadelphia, and St. Louis, ranked among the most affordable.
However, there is hope for improvement in 2024. As mortgage rates have started to decline, the typical homebuyer's monthly payment decreased to $2,575 during the four weeks ending November 26. New listings have also seen their largest annual increase in over two years. Looking ahead, Redfin predicts further growth in listings, a fall in mortgage rates to around 6.6%, and prices will drop 1% in 2024.